Blessed by the Potato

I’ve long been opposed to the privatization of Canada’s Crown corporations. To my mind, most of them exist for very good reasons: to ensure service delivery in what might otherwise be an underserved market, to foster competition in a marketplace prone to monopolies/oligopolies, or to provide a service that private corporations can not be trusted to handle. In many cases to operate without profit as the prime motive. Plus privatization hasn’t served us terribly well in the past: look at Ontario’s 407 or Drive Test centres, for example.

However, with the recession putting a dent into the government budgets, there is a lot of talk about privatization again. I’m even more opposed to it now because in addition to the other factors, the timing isn’t particularly good. Interest rates are low, and there is demand for safe government bonds (or an aversion to risky investments). The government should have no problem issuing all the debt they need to cover the deficit in this environment, so a sale isn’t a necessity. More importantly, the private sector is going through some of the same pains of the recession — and with the flight to safety, have to pay a premium to raise money — so they’re not going to be able to put attractive valuations on the Crown corporations for buyouts. We’ll get more buck for our bang by waiting until conditions to improve to sell (at which point interest rates may be higher and the 5-year bonds may be maturing and all set to be paid off).

Call me a Keynesian, heck, call me a socialist, but to my mind the economy runs in cycles. The job of the government is to work against the boom-bust cycle: the government is supposed to run massive deficits during recessions to prop up the economy (and to weather the decreased revenue), and is supposed to pay that debt down during the good times with surpluses. However, everyone always seems shocked and appalled whenever a recession brings about the double-whammy of increased spending and decreased tax revenue, and the government starts racking up debt (though caution with debt is always warranted). When things turn around and a surplus is generated, people are again put off by the fact that the government is “over-taxing” them, and demand tax cuts and pork-barrelling, when the boom times are when taxes should be raised and the debt retired. If the government had to take over some failing industries in the downturn, such as say a railroad or two, the boom times might be a good time to spin that off in an IPO; not trying to sell of what good assets they have in a downturn.

Hello faithful readers! I’m going to be doing some work on the back end of the site over the next week whenever I find the time to. It is very possible that I will temporarily break the site as I fiddle. Have patience, and remember to come back to holypotato.com if you have bookmarked the IP address directly (or if you’ve subscribed to the RSS feed and you don’t get any new posts next week). Also, I have a number of drafts here with further rants about the housing market. I’m not 100% pleased with these, but since Wayfare and I have found a place to move to, real estate is moving out of the forefront of my mind (or the secondfront of my mind, as the forefront is probably still that grad school thing I work on every day and dream about every night), so if I don’t push them out now, they’ll die a cold, lonely death in the drafts folder. I’m also posting them to give you something to keep yourselves busy with while I work on the server.

“…Through the mechanism of CMHC, Canada’s banks HAVE ALWAYS had pre-arranged taxpayer bailouts” — Future Expat, comment at greaterfool.ca.

The CMHC was created to help make housing affordable in Canada. Affordable housing. It sounds like such a noble goal.

Unfortunately it’s one of those things where what’s good for one person is bad when it happens to everyone in society at once. Maybe it’s related to Jevon’s paradox, though the closest I can come to finding a term for this phenomenon is “congestion” (opposite of the network effect).

It may be a noble pursuit to give low-cost government insurance to cover a mortgage for a young person to buy a house in a rural area, as they may not have any rental options in a small town, and with no appreciable down payment, a bank might not give them a loan otherwise. Government intervention in these small, inefficient markets probably does bring some benefit to people, at very low cost and risk to the taxpayer. However, CMHC insurance is not limited to those looking to buy in areas where rentals are not available, but country-wide. Even in the cities where a large rental market means it’s not needed. Even to speculators who have no intention of living in their investments.

Even if a rental is an option, give a girl some low-cost government insurance to step up to owning her own condo, and she’ll take it.

As the housing bubble has inflated here, everyone started needing CMHC insurance. Houses went up faster than people could save for the downpayment, so more and more people got past the stigma of having to pay for the insurance, and took the CMHC option to “get into the game” earlier and earlier. This started a positive feedback loop, made all the worse by the government lowering the minimum CMHC downpayment to 0% (since raised to 5% — still not much!).

At the same time, amortizations increased to 40 years (since reduced to 35 years). Again, something introduced with the intention of giving home buyers a safety net and to make housing more affordable — if you could afford a 25-year amortization, you could opt to take a 35-year one and just top up your payments as long as things were good, but have a lower minimum payment if things went poorly (e.g.: if you got hit with a big repair bill, or lost some hours at work). Instead, people just bid houses up to the point where most people needed a 35-year amortization just to afford things. Houses, paradoxically, became less affordable.

CMHC insurance is also perverse because the insurance isn’t just on the part of the downpayment missing, that is, it doesn’t insure the 15% difference between the 5% downpayment made and the ideal 20% down. The government is on the hook for the whole mortgage, leaving the bank with essentially no risk for writing a CMHC-insured mortgage. For this reason, people with no downpayment, who have shown no history of financial discipline (as long as they meet some minimum credit score), can get just as good of a mortgage rate as someone with skin in the game, all because the risk is offloaded to the government. This leads the banks to be less stringent in the loans they make — the same sort of incentives towards risky behaviour that securitization of subprimes in the states had. Not quite the exact same since CMHC does have some standards, and will occasionally check up on a borrower and/or appraise the house — but saying “we’re not quite as bad as the Americans” does not bring me any joy. It’s a difference of degree but not of kind. The banks have a split interest in housing bubbles: they want to drive bubbles (at least on the way up) because it leads to larger mortgages, which means more interest income for them. Simultaneously, they want to limit losses, so they don’t want to stoke a bubble too much. But with the CMHC the risk side of the balance is blown away completely, as from the bank’s point of view a first-time buyer with 5% down, a 35-year am, buying the absolute most house they can afford and with no credit history is less risky than a millionaire putting 50% down with the intention of paying the rest back in 15 years.

Canadian Capitalist recently had a post about the bubble, shaking his head at Canadians who are driving housing prices to the moon with (currently) cheap mortgages, even after seeing the disaster that caused in the US (and many other nations), saying: “Those who fail to study history are condemned to repeat it. Those who ignore very recent experience are just being stupid.”

Over at the Canadian Money Forum, I saw something that made my jaw drop. The CMHC charges insurance fees, and if we assume that ~6% of mortgages written today will default when the bubble collapses, which a severity of ~40% each (i.e. in the same ballpark as the US experience), then the fee of 2.75% is probably not too far off. However, one poster said that:

“…CMHC mortgage insurance operation is a great expensive rip-off of Canadian homeowners. […] last year cost Canadians $1.2-billion in premiums paid to CMHC. The net claims against CMHC for mortgage default totaled $117-million, for a premium-claim ratio of 10 to 1.”

…which made me wonder what was going through his head. On the surface, it does sound like the CMHC is a cash cow for the government, netting over a billion dollars — indeed, put like that, you could see a motive for a government facing record budgetary short falls to perhaps play with fire and stoke the bubble a bit. However, the housing market has been on steroids for the last few years, and interest rates were on the way down to the ground floor. The fact that there were any payouts made me wonder what the hell was going on. Anyone who bought more than a year ago should have been able to easily sell (or in the parlance of the times, “flip”) their place if they ran into trouble for whatever reason, and break-even at the very least. Yet somehow the CMHC had to pay out hundreds of millions to the banks on defaulted mortgages. What’s going to happen when we actually have a housing correction? Is CMHC insurance too cheap for the risks being assumed?

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In a recent post, I tried to explain that hysteria around vaccinations is uncalled for — they’re not perfect, complications do occur, but they’re generally much less risky and preferable to a pandemic. The idea that the government is out to get you with them is silly.

Ben raised the point about corporations being out to get you, and manufacture hysteria. Just so I don’t give corporations a free pass, let’s explore that idea. First off though, I’m going to say that I really doubt that the flu shot is the vehicle for a corporate takeover of the world. Even with big volume (trying to get 50%+ of the population vaccinated), vaccines aren’t a huge profit centre — governments place the orders and negotiate to shave profit margins, and vaccines by and large aren’t patent protected like many medications (i.e.: there is some competition, and they are not a product with retail markups).

Flu drugs taken after you get sick are a beast of a different nature. On the one hand, they seem like a miracle of modern science: long after we had a full spectrum of antibiotics to use, we still hadn’t developed terribly effective antivirals. On the other, this is where the corporate profits at the expense of the little guy story seems to take hold, if only a little. These drugs are of limited effectiveness (they won’t make your flu go away overnight), and the viruses can rapidly evolve resistance to them. They have a much worse risk profile than vaccines; though that’s not as important because you take them after you get sick. Cancelling that out is the fact that you have to take them so soon after you start displaying symptoms that there’s a high chance people who weren’t/wouldn’t be very sick (or who were running a fever for a non-pandemic flu reason) will be popping them anyway — or contrarily, people who are quite sick won’t get them because it’s silly to go to your doctor the first day after you get a cough.

They are very handy drugs to have stockpiled, especially to keep the front-line healthcare workers on their feet. But Canada purchased 55 million doses — or perhaps to keep the anti-corporate slant going, Canada was sold 55 million doses. A typical course is 10 doses, so that’s enough to treat 5.5 million people, 16% of our population, which IMHO is probably overkill. The figures I have say that in a typical flu season ~20% of the population gets sick; even if that’s more like 30% for H1N1 (even after the vaccination program), we’d have to have half those people see a doctor within a very short time after starting to have a fever, and be willing to take a fairly new-to-the-market medication (after all, these will likely be the people who didn’t want the vaccine). I just have a hard time seeing that happening. I think our government might have been too afraid to be seen doing too little to prepare, and was over-sold the antivirals (which is an easy pitch for the corporations to make in this environment), or was sold them for prophylactic use. Of course, some of those antiviral doses could ultimately be destined for 3rd-world countries as part of our foreign aid efforts, in which case over-stockpiling makes some sense.

The US government has about half as much per capita at the moment, but their stated goal is to have the reserves to treat up to 25% of their population.

Now, all this ranting about Tamiflu over-use is a little two-faced because unfortunately, Wayfare has come down with ILI (Influenza Like Illness — fever, coughing, body aches — they don’t bother to run the lab tests for H1N1 any more since according to the health unit, it’s the only strain of virus on the go at the moment). So, knowing the limitations of Tamiflu (having to start treatment early), we rushed off to the hospital even though she wasn’t that sick. She had a chest x-ray and was prescribed Tamiflu (as well as an over-the-counter sinus cleanser such as hydrasense — I thought those things were pure quackery at first, but apparently there is some belief that they help). Given how scary this strain of flu can be in young people, it seemed like a prudent thing to do. The government even gave us the Tamiflu for free!

As for me, I had my shot on Monday, but it takes 10-14 days to build up immunity, so I’ve got a small window here where she can infect me. I’ve just got to stay holed up in my office for another week…

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There is a device that the government has tried to put around the neck of every person in the country. It looks innocuous, but it can cause bruising, interfere with napping, and while it may have been a handy tool in the 60s, there’s insufficient proof that they’re so needed in modern life that the government should be forcing their universal use. On top of that, adjuvant devices have been mandated recently as well, and these can cause really nasty burns, fractures, and other miscellaneous injuries, even if the person wasn’t at serious risk of the thing they were designed to protect against! In fact, they can make things exponentially more hazardous for first responders trying to help you!

Do you want the government forcing these devices into your life? Into the faces of your children?

I am, of course, talking about seatbelts and air bags, something you’d never consider buying a car without. But if you pitch the rhetoric the right way, look at the side effect risks without considering the benefits, and throw in a touch of paranoia about the government, then suddenly you’re not so sure you want those things in your life.

And so it is with vaccines: they’re not perfect, there is a side-effect spectrum. Unfortunately just due to the nature of the beast, any vaccine for the flu strain threatening us with a pandemic, H1N1 this time around, has been rushed to market. If it wasn’t rushed to market, it wouldn’t be specific to the strain that most recently evolved. We’re not going to have perfect information about the safety profile. We’re not going to have perfect information about the effectiveness since, after all, if we waited for that it would be too late for a vaccination program to work. That’s not to say that this is a shot in the dark — we know in general that vaccines are quite effective, and we know that in some large trials the antibodies against H1N1 were successfully produced by the people vaccinated. It’s just that it’s nearly impossible to meet the standard of evidence that some of the people standing up against vaccination are demanding. In this case you should not take the absence of definitive evidence as evidence of an absence of effect.

Fortunately, vaccines really aren’t that different from one another in their general side-effect profile. What will vary will be how many people get the specific illness from the vaccine (i.e.: if any live viruses get through and actually infect people), and how effective the vaccine will be. Which, as I said, probably will never be known until long after the window for vaccinations has ended.

It’s a gritty, uncomfortable situation to have to make potentially life-or-death risk-benefit decisions on such very imperfect information, and not what we generally expect from our doctors. But that’s all we’ve got.

And there is a lot of hype going on about the flu, and the vaccines, and it’s all a little much to take in.

For the H1N1 pandemic fears itself, I think that the coverage is a little over the top, but just a little. This is a fairly nasty strain of flu that kills young, healthy people — not just asthmatics and the elderly like most flu strains. There is something different about this strain than the regular seasonal flu. It’s deadlier and more contagious than is typical. On the other hand, it’s not turning out to be as deadly as it looked from the first cluster in Mexico (it’s not SARS-bad).

Some of the groaning about overhyping comes from the fact that Avian flu (H5N1) was over-hyped so much just a few years ago, but no pandemic came of that! Things are a little different this time around: Avian flu had the potential to cross the species barrier into humans, and was highly contagious… but was mostly contained to birds. Swine flu though is spreading person-to-person, and it’s in Canada (with nearly 100 deaths already). It’s still early and we don’t have a good idea of the total number infected, but the death rate appears to be about 10 times higher than a typical seasonal flu. People are stupid, and forget basic things like handwashing and not coughing on people on the bus, so I figured that a little bit of hype isn’t a bad thing from that perspective.

Hype can be damaging — people have very little patience, so if a pandemic doesn’t materialize in their community soon, they’ll start tuning out the message. On the other side of the spectrum, pandemic hype can lead to people not travelling, not eating out, etc., which can be costly to an economy already on the edge.

I’m not an epidemiologist, but looking at the data that’s out there now and doing a back of the envelope calculation, it looks like we’re on track to have 50,000 deaths in Canada as a result of H1N1 by the end of 2010, unless something changes (such as the vaccination program — all the deaths so far have of course occurred before the vaccines were available). So you tell me, is that potential worth the hype?

Thanks to our near-miss with SARS, hospitals in Ontario are well equipped to handle infectious diseases. Proper respirators are well-stocked, training courses have been given and repeated, and patients are screened for fever as a matter of course. The first few days of the vaccination clinics here have had very large response rates, with people lining up for hours to get the shot early. I believe that thanks to the hype (& vaccines) Canada will probably be looking at around 10,000 deaths by the end of this — about twice as bad as a typical flu season. Some will of course look back and wonder what all the fuss was about, and others will be glad we’re not in the parallel universe that did have to find out the hard way how bad things can get.

How on earth does it make sense for these OHIP cards to have to be renewed every 3-5 years, especially when a) they’re not legally allowed to be used as ID and b) a significant portion of Ontarians still don’t have their first photo OHIP card. In the last 3 years I’ve now spent more time waiting in line to apply for/renew my photo OHIP card than I’ve spent getting medical care, and that includes two hospital trips!